The September CPI data, set to be released today, is a focal point for markets as the final inflation reading before the Fed's interest rate decision on October 28. Current market pricing indicates an approximately 77% probability that interest rates will remain unchanged in October, with a 23% chance of a hike. This picture reflects that investors largely anticipate a pause but are not entirely convinced.

What is the CPI and why is it important?

The CPI is an index that measures price changes in a basket of goods and services purchased by households over a specific period. Core CPI, which excludes volatile items like food and energy, provides a clearer view of the underlying trend. The Fed closely monitors this data to steer inflation toward its 2% target. Data coming in above expectations strengthens the likelihood of an interest rate hike, whereas figures below expectations increase the probability of the policy rate remaining unchanged.

Key factors influencing inflation

Energy prices are among the most significant drivers of inflation. The rise in crude oil prices in September pushed up gasoline and diesel costs, directly impacting headline inflation. Food prices also exhibit similar volatility. Housing and rental costs stand out as major components of core inflation. Wage growth and supply chain conditions are among the other factors shaping price pressures.

Expected figures and market impact

Expectations for September are for headline CPI to rise by 0.6% on a monthly basis and to increase to 3.7% on an annual basis. This increase is expected to stem largely from rising energy prices. Core CPI is projected to rise by 0.2% on a monthly basis and remain within the 2.4%–2.5% range annually.

If core inflation exceeds expectations, the market may increasingly price in an interest rate hike for December. This could push the dollar and bond yields higher while exerting downward pressure on risk assets. Conversely, if core inflation aligns with or falls below expectations, expectations for a pause in October could be confirmed, potentially easing some of the pressure on risk assets.

Pre-announcement market reactions

In the crypto market, a cooling of institutional demand is evident ahead of the data release. US spot Bitcoin ETFs saw net outflows of approximately $679 million over the past week, ending a three-week streak of uninterrupted inflows. Meanwhile, Ethereum ETFs recorded outflows over nine consecutive trading days. This picture indicates waning appetite for risk assets prior to the data release.

After retreating to as low as $80,324 ahead of the data, Bitcoin is attempting to hold the $83,000 level. The market may trade sideways and struggle to establish a clear direction until the data is released. A decline in open interest and leverage ratios in the futures market suggests a reduced risk of sudden drops driven by forced liquidations; however, this also signals a decline in speculative appetite.

In the bond market, the 10-year Treasury yield is hovering around 5.2%. High yields are exerting pressure on Bitcoin and gold by increasing the opportunity cost of holding non-yielding assets. Meanwhile, gold remains range-bound between $4,150 and $4,200, supported by central bank purchases. The dollar index has maintained its strong momentum in recent days, continuing to put pressure on other currencies and commodities.

In conclusion

The CPI data to be released today will shape expectations regarding the Fed's interest rate path if it provides a clear signal on the trajectory of inflation. The trend of core inflation will be a decisive factor for market pricing. The crypto market is adopting a cautious stance ahead of the data; ETF outflows and reduced leverage indicate waning investor risk appetite. Following the release, the market's direction will be determined by how closely inflation converges toward the Fed's target.

This article does not constitute investment advice. The analysis is based on publicly available information and does not guarantee future results.

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